Tennessee Jumps on Economic Nexus Train

Tennessee is the latest of states to jump on the economic nexus bandwagon. In an effort to sidestep the physical presence the proposed rule would require out-of-state dealers that engage in the regular or systematic solicitation of consumers in Tennessee through any means and make sales exceeding $500,000 to Tennessee consumers during the calendar year would be considered to have substantial nexus with the state. One substantial nexus is established, the dealers would be required to register with the state and collect and remit sales and use tax.

Similar to recent rulemaking in Alabama, Tennessee does not believe its position offends the Commerce Clause. The proposed rule, may go into effect on or about November 8, 2016. It is worthy to note the rule is subject to committee review in both house of the Tennessee legislature and legislative approval is needed before a rule can become permanent.

Tennessee is not the only state attempting to combat Quill. Similarly, Alabama and South Dakota are litigating whether their economic nexus standards are sufficient to satisfy the Commerce Clause substantial nexus requirement. Earlier this year, South Dakota adopted the economic nexus for sales and use tax purposes. South Dakota is currently a plaintiff and defendant in two separate cases addressing the constitutionality of the substantial nexus law.

With respect to Alabama, the Alabama DOR promulgated a rule in late 2015, which was an economic nexus basis for sales tax purposes of out-of-state sellers lacking a physical presence. The plaintiff is arguing, among other things, that Alabama lacks the ability to circumvent Quill. It appears this case is still at the trial court level.

Other states (Oklahoma, Vermont, and Louisiana) are preliminarily following the path of the above-mentioned states, but in a more conservative approach. Generally, these states are requiring that a statement be mailed to the consumer saying the consumer should report and remit its use taxes on purchases from out-of-state dealers. It is clear that until the Supreme Court or Congress does something, aggressive nexus legislation will become more and more prevalent.

About the Authors: Gerald “Jerry” Donnini II is a partner of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of Florida and Federal tax matters, with a heavy emphasis on the tobacco, convenience store and petroleum industries . He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Us Tax and writes extensively on multi-state tax issues for SalesTaxSupport.com.